OEMs and Tier 1 suppliers face many challenges with their business models today, as well as their profitability. One of the reasons for this is the increasingly more complex and extremely competitive ecosystem of the automotive industry. Auto-players such as Tesla, Google, Uber, and Intel (amongst many) are constantly innovating. OEMs and Tier 1s need to take notice and reflect on that change.
What’s at Stake?
Despite the automotive industry bringing in more than 2.5 trillion dollars a year, profits have gone down across the board for many years. One of the reasons for this drop is the increased complexity in modern vehicle design, which naturally increases spending on engineering and R&D by large margins.
Couple that with chip shortage and the increasing warranty claims cost (which reached 4% of their revenue for some OEMs) and many OEMs can face increasing profitability challenges.
What are OEMs and Tier1s Doing?
Many OEMs and Tier1s use advanced technology to help improve quality and reduce warranty claims to tackle these losses. How? By constantly monitoring vehicle health and identifying malfunctions at much earlier stages. These mitigations also serve to strengthen customer connections (that were once lost to third parties) through new services that are implemented directly for end-users disposal (post vehicle sales contract) at any point of the vehicle’s life cycle and being offered through software updates over the air.
Here is a taste of the many market leaders who put these tactics into practice.
Tesla Set a Standard
As of April 2022, Tesla has more than a trillion-dollar market cap. So how did they do this? They delivered the first EV in the market, still holding one of the best range performances, and are innovating and modernizing our driving experience constantly.
Adding to their success are the innovative business models that work in parallel with the company’s development strategy. Simply put, Tesla is the first car company to treat their cars the same way Apple treats their phones.
The Full Rounded Approach
Tesla sells their own insurance, collects data constantly, and uses AI technology to process that data and create over-the-air updates that can deliver quality improvements and new services for their customers at a steady and qualitative pace. This approach continually enhances vehicle value and increases customer loyalty. In addition, Tesla’s approach helps make for improved profitability. As a result, the Tesla brand seems to be ahead of the curve. Their development, technology, profit, and customer satisfaction only improve over time.
The benefit of using such advanced AI systems does not just stop with passenger vehicle manufacturers. Commercial fleets, truck OEMs, and Tier 1 suppliers are seeing the benefits too and have implemented their own strategies to maintain and improve a competitive edge.
Meet Cummins CareTM
The major American engine supplier is using connectivity to offer Cummins customers the ability to continuously monitor and diagnose engine faults, close performance gaps, and avoid progressive engine damage for fleets. Like Tesla, Cummins uses software updates and connectivity to make their engines smarter, safer and more performative on all fronts.
The multinational automotive manufacturing corporation Stellantis sells subscriptions to software that enables navigation voice assistance, an eCommerce marketplace, and payment services, but that’s just scratching the surface. A great example of end-to-end digital services, the Stellantis model is forecasted to generate an annual revenue between US$4.5 billion to US$22.5 billion from 2026 to 2030.
Continental, SHARE NOW Denmark & Questar Nordics
Continental began a major pilot in late 2020 with Questar Nordics and car-sharing company SHARE NOW Denmark. The collaboration successfully demonstrated how tires, sensors, telemetry data, algorithms, and cloud analytics are used to reduce tire wear and improve battery range in electric vehicles.
In January 2022, the companies announced the expansion of the collaboration with Conti360° Solutions. The collaboration was another clear case for the essentiality of end-to-end automotive modernization.
Together, they collected data from 700 vehicles in real-time and processed tire-pressure readings from the tire sensors. The data produced insights into the company’s operations department via cloud. The Continental-Questar-SHARE NOW collaboration allowed the car-sharing provider to put together a customized service package and capitalize on the benefits available, for instance, selecting and fitting the correct tires to the training program for employees and conducting data-driven tire monitoring. The result? Enhanced fleet safety, productivity, and reduced costs.
Toyota Motor Corporation
Many suppliers with complementary offerings are joining forces, significantly adding synergetic value, increasing sales, and reducing costs. One such example is Toyota Motor Corporation. In June 2018, the world’s most profitable car manufacturer announced a US$1 billion investment in the Singapore-based ride-hailing service ‘Grab,’ which gave Toyota access to Grab’s mobility data. Thus, directly facilitating Toyota’s transformation from an asset producer into a mobility services provider. Moreover, this innovative partnership launched Grab into the largest Wall Street debut in the Asian market in history. An IPO that opened at US$40 billion.
BMW and Daimler have partnered up on a joint Mobility as a Service (MaaS) venture dubbed Your Now that aims to enhance urban mobility by giving more people in major European and American cities access to environmentally friendly means of transport. This venture delivers four mobile app solutions. FREE NOW is for chauffeur and taxi rides, as well as e-bikes, e-moped, and e-scooter sharing. SHARE NOW is for car-sharing services, CHARGE NOW is for vehicle charging, and REACH NOW provides the convenience of searching, booking, and paying for transport in any city with just one user account.
“Our mobility services have developed a strong customer base and we are now taking the next strategic step. We are pooling the strength and expertise of 14 successful brands and investing more than €1 billion to establish a new player in the fast-growing market for urban mobility.” – Dieter Zetsche, Chairman of the Board of Management of Daimler AG and Head of Mercedes-Benz Cars.
What’s the Take-Away?
The vehicle of today has a story to tell, and through the data being collected, the story seems clear – “The more you know about me, the more profit you are going to make and the happier you will make your customer.” Many OEMs and Tier-1 suppliers are doing everything they can to tell that story and pave the way for new connectivity, data, and AI-driven initiatives.